Saturday, April 24, 2010

Capitalist Debtopia!

Greetings good citizen,

The kids return to school Monday and there isn’t a good reason to keep ‘goldbricking’ (leaving all of the ‘heavy lifting’ to the ‘ideologically tainted’ crowd…)

Which is not to say things are ideologically ‘neutral or free’ here…I have my own agenda, which isn’t nearly as disturbing as the mainstream one tends to be.

Some may consider that agenda a ‘lesser evil’ and I’ll be the first to admit it is purposefully ‘heavy handed’, if only to counteract the pervasive permissiveness that has driven our civilization to the brink (and likely beyond) of collapse.

The ‘ideologically tainted’ are, naturally, capitalists and it is maddening to see ‘fuck you, pay me’, defended as a viable economic model while it collapses all around us.

So it is that we arrive at tonight’s offering for a detailed look at ‘Kleptocracy’ and the empire it built…

The End Of Debtopia

Greece is turning into history's first failed debtopia, an economy that thoroughly eviscerated its production and earned income foundations to replace them with consumer spending on cheap imported goods and asset inflation, both fuelled by massive foreign debt. Naturally, GDP growth kept zipping ahead for a while, but so what? To arbitrarily extend the ketchup economics of Larry Summers, Greeks shut down all of their tomato-processing factories, borrowed a ton of foreign money to turn factories and farmland into expensive condos and bought cheap imported ketchup, instead. Naturally, there were lots of domestic jobs in home construction at first, but as soon as credit conditions turned sour it was game over.

Greeks no longer make anything that anyone else wants to buy at the price Greeks demand (see chart below), cannot earn enough money to service their debt properly and - quite obviously - cannot maintain a lifestyle that rose to unsustainable levels because of that ever-higher debt. Furthermore, they cannot devalue their currency to increase competitiveness and inflate their way out of debt. Their only choice is domestic deflation and even the head of IMF has pointed this out: "The only effective remedy that remains is deflation" he said a few days ago.

Of course, what Mr. Strauss-Kahn means when he says "deflation" is fresh loans in exchange for a reduction in the domestic cost of production, i.e. lowering workers' wages and benefits, plus a healthy dose of deregulation. In other words, the standard IMF medicine administered many times with dubious results (think Argentina.)

Quite apart from the obvious retort of "lower the cost of making what?", since the Greeks no longer make ketchup, I fear that the IMF's plan for Greece will prove an utter failure, at least as it is envisioned right now. While I agree that deflation is absolutely necessary, since being a member of the eurozone Greece cannot perform a competitive currency devaluation, I strongly disagree with the type of deflation that is needed. To wit, I would recommend debt and asset deflation, to bring fixed costs in line with what the economy can earn. [Sadly, both of those factors cannot be controlled outside of domestic markets, giving importers a huge advantage at the risk of ‘social cohesion’…]

For example, residential and commercial real estate prices should come down enough so that wages and business earnings may once again comfortably cover its purchase or rent. Right now they don't, and by a wide margin (e.g. an apartment in Athens can cost several times more than the average single-family house in the U.S.) Similarly, the country's total debt load should be reduced - instead of increased with more loans from the EU or IMF - to a level where it can be serviced properly by the real economy.

And as an aside maybe I should point out the debtopic similarities between Greece and the United States? Ah, but the U.S. has its own currency and can devalue at will, you may retort. Can it, really?

First, don’t get sidetracked good citizen by asking what does Greece have to do with our own situation here in the US. As Hellacious points out, our, er, problems are identical and so are the ‘capitalist’ solutions to those problems.

You may note, Hellacious doesn’t point out or even consider that there are ‘non-capitalist’ solutions to what is seldom officially recognized as a ‘solvency crisis’…because our debt-driven social model is what ‘caused’ the crisis! (And hardcore capitalists don’t want to start a ‘debate’ centered on the ‘viability’ of capitalism.)

What ‘caused’ the crisis, good citizen…well, many accuse ‘greed’ but it is really too much money chasing too little return that caused all of the reckless, er, ‘bets’ that went sour, (as they always will when you try to produce something out of nothing.)

IF the outcome is that we abandon our predatory social model, it could be a net positive…but I am doubtful that those who value their own creature comforts more than they value ‘civil society’ will surrender their ‘advantages’ willingly.

As you well know, criminals aren’t born, they are created…no irony should be lost on the fact that both ends of the financial spectrum create them, albeit, they are two entirely different varieties, one that can be, er, ‘redeemed’ and one that is beyond redemption…

Guess which one you can fix?

Now contrast that with the crisis facing civilization, and magnify it by ‘who’ is nominally in charge of, er, ‘solving’ the problem…

Thanks for letting me inside your head,


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